US and European markets slide despite China cash injection

The UK's FTSE 100, Germany's Dax and France's CAC 40 were all trading down between 1 and 2% on Wednesday morning, following a volatile trading day in the US when markets made a sharp downward turn after initially rallying to close 1.3% lower.

This follows one of the worst trading days for global markets since 2008 on Monday 24 August. Since dubbed "Black Monday", an estimated $1.4 trillion was wiped off of global markets due to fears over China's flailing stockmarket and currency.

China's main domestic index, the Shanghai Composite index, closed down 1.3% on Wednesday. This was a marked improvement on declines of 8.5% and 7.5% on Monday and Tuesday, however reflected widespread scepticism over the ability of Chinese authorities to stem outflows from its stockmarket.

On Wednesday evening (Beijing time), Chinese authorities announced that it had pumped $22 billion (£14.1 billion) into its economy in the form of short-term loans - known as SLOs. This followed a cut to the country's main interest rate and changes to banks' capital requirements on Tuesday.

Commenting on developed markets' reaction to China's policy moves, Alastair McCaig, market analyst at IG, says: "Having become increasingly used to the more unorthodox methods of the People's Bank of China (PBoC), it was maybe unrealistic to expect the more commonly used Western tactic of interest rate and reserve rate cuts to have instilled confidence into China's investment community.

"The initial euphoria this triggered with the US markets didn't even last a full trading session and Europe has once again opened in a sea of red. The bulls currently are displaying a complete absence of conviction," he says.

However, a number of emerging markets' experts have warned investors not to "over react" to the current situation in China, insisting that developed market policy - in particular the Federal Reserve's mooted interest rate hike - are influencing events more than a change in fundamentals.

These include Robert Horrocks, chief investment officer of Matthews Asia: "Asia still remains the part of the world where productivity is growing at the fastest rate. They still maintain high savings rates and a thriving manufacturing industry.

"They're still powerhouse exporters across the globe and you're still getting millions and millions of people brought into middle-class lifestyles - the growth of the service industries and the consumer-focused industries and businesses. So, whereas the markets can seem scary at times like this, it's at times like this where you start to see the opportunities emerge for long-term investment," says Horrocks.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.